PARIS -- Renault raised its 2004 profit target on Wednesday, emboldened by better-than-expected first-half results as motorists snapped up its Megane cars and it made money outside western Europe.
Europe's fourth-biggest carmaker lifted its full-year operating margin target by one point to 5.5 percent of sales, up from 3.7 percent in 2003, based on current exchange rates, and said net profit would rise accordingly.
First-half net profit jumped 28.5 percent to 1.51 billion euros ($1.84 billion), above a Reuters consensus forecast for 1.41 billion and buoyed by a bumper dividend from the company's 44.4-percent owned Japanese partner, Nissan Motor Co.
"These are excellent results," said Patrice Solaro at Kepler Equities. "A market rebound helped, and cost-cutting efforts over the past 2-3 years are bearing fruit."
The company's operating profit more than doubled to 1.28 billion euros, compared with expectations of 958 million, hitting levels not seen since the company's heyday in the late 1990s.
Sales rose 11 percent to 20.76 billion euros, yielding an operating margin of 6.1 percent.
"These results are much better than market expectations and our own," Chairman Louis Schweitzer said. "In this context we think it is legitimate to revise our full-year target up by one point, making it the best operating margin among European manufacturers."
Around one-quarter of the jump in operating profit was powered by better margins outside western Europe, where business was now in the black, after barely breaking even last year.
Cost cuts, higher sales in recovering markets and a better product mix, as it sold more of its lucrative Megane range, also swelled profits Schweitzer said. Renault expects demand in western Europe to rise 1 to 2 percent in 2004.
Renault's core profits and sales had stalled in recent years as its line-up aged alongside flashier new offerings from rivals. But it has bounced back over the past year thanks to its love-it-or-hate-it mid-sized Megane range, which includes the hit Scenic minivan.
Renault's growth underscored the strength of French carmakers compared with their European rivals.
PSA Peugeot Citroen weathered a model drought and a tough home market better than expected, limiting a drop in first-half profits and giving hints that it could raise its full-year targets.
By contrast, German giant Volkswagen posted weak first-half earnings and slashed its 2004 target, while the auto unit of Italy's Fiat saw its operating loss widen in the second quarter.
Schweitzer also said it was his "personal conviction" that profits would continue to rise in 2005, although some analysts said this was unlikely given that Renault will be past the zenith of its product cycle after this year.
"These are great results but we are in danger of forgetting that these are cyclical companies," said one London-based analyst. "This is the peak of their product cycle and things are not going to going to get any better."
Operating margin in the second half would not match the first, due to seasonal effects, but would beat the year-ago level thanks to launches of the Modus compact car and Logan no-frills model for emerging markets, Renault said.
Renault also expects to save more money in the second half through tie-ups with Nissan, since the Modus shares a platform with the Micra, the Japanese company's popular small car.
Renault said it cut debt at its auto division by 937 million euros from the end of last year, to 811 million at end-June. The contribution from Nissan rose 9.3 percent to 939 million euros.